Will You Put Anyone In a Bankruptcy?

 

Will You Put Anyone in a Bankruptcy?

 

No.  Contrary to how some attorneys practice, I will not put just anyone in a bankruptcy, and I am judicious about who I accept as clients.  When I am considering whether to help a client file for bankruptcy, I consider the following factors:

• Whether the debtor is financially stable if the debt is removed.  To put this another way, if the debtor doesn’t have the bills hanging around his or her neck, can he or she afford the cost of living.  My rationale is that if the debtor cannot afford the cost of living, I am not using the protection of bankruptcy to the fullest extent.  I want to time the bankruptcy so I maximize the amount of debt owed, and I want to really be able to give the debtor a fresh start.  In addition, if the debtor is still living on credit at the time of filing and afterwards, then the debtor could be cited for bankruptcy fraud (incurring debt while planning to file for bankruptcy), and the debtor will be barred from filing for bankruptcy for the next seven years. 
• Whether the debtor has an income that fluctuates wildly.
• Whether the debtor is serious enough to go through with the bankruptcy proceedings to the point of reaching a discharge.
• Whether the debtor has stopped living off of credit.
• Whether the debtor is truthful about his or her assets to me.
• The amount of debt owed to the amount of creditors versus the debtor’s income.
• The amount of debt that is non-dischargeable (such as tax debt, student loans, and domestic support obligations).

When considering to hire an attorney to help you file for bankruptcy, it’s a good idea to make sure the attorney is looking out for your best interest.  I invite you to come into the Gordon Law Group and meet with me to discuss your debt-relief options.

How do I pay for a bankruptcy?

A lot of my bankruptcy clients do not have much money.  Generally, that is a given, and it is the reason they are needing to file for bankruptcy.  However, many of them do not know how they can afford a bankruptcy, and so instead of seeing a lawyer and trying to get some relief, they continue to live in a perpetual state of fear from their bill collectors.  If you know that you are going to be filing for bankruptcy, it is advisable to stop paying credit cards and other similar bills.  It is important to stay current on your house, car, insurance, and utility bills, but the other ones you can let go.  Why?  Isn’t this counter-intuitive?  The answer has a couple of dimensions:  (1)  you need the money to live on (i.e.  eat, keep a roof over your head, get to work); (2) the payments to creditors are usually so small that they only pay a small percentage of the interest; (3) a trustee can pull back payments made to creditors within 90 days of filing for bankruptcy as preferential payments, so the creditor could end up without a payment anyway; (4) you will need the money to pay the bankruptcy attorney.  A wise Chapter 7 bankruptcy attorney knows to get paid in full before filing a bankruptcy case.  This is because otherwise the debt will be discharged in the bankruptcy, and the attorney will not be able to collect on it afterwards.  In addition, the automatic stay will bar any attempts during the bankruptcy of the attorney to collect on the debt.  Always be wary of an attorney who says he or she will let a client pay later — they may not know the law as well as they should.

On a related note, it is very important for a debtor who wants to keep her house and car to be current on those payments.  A secured creditor has no reason to enter into a reaffirmation agreement with the debtor to continue the debt through the bankruptcy for collateral such as a house or car unless the debtor has proven to be trustworthy and reliable with payments.  It is also important to stay current on the insurance for a house and car because that is often a requirement by a creditor when extending credit.  If a debtor lets the insurance lapse, a creditor may have the right to foreclose or repossess on the basis of breach of contract.  Finally, it is important to keep your utilities current because otherwise they will be shut off, and they will only be turned on again when you are current.

Common Bankruptcy Questions

What is a Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy is essentially a liquidation of a debtor’s assets.  More often than not, the debtor actually has no assets to distribute to the creditors, so the bankruptcy acts purely to clean the proverbial slate for the debtor and grant a fresh start.  In order to qualify for a Chapter 7 bankruptcy, the debtor must have a gross (this is before anything is taken out of your pay check) monthly income under certain limits depending on the number of members of the debtor’s household.  The bankruptcy court looks at the past six months’ worth of income, and it imputes that income to the whole year.  Additionally, any assets over the state or federal exemption limits (depends on the state), will be available for seizure by the trustee.   If the trustee seizes those assets, they will be liquidated and paid out to the creditors, per the bankruptcy code. 

What is a Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy is for reorganizing and allowing the debtor to pay back the debts (a percentage ranging from 0% to 100%) through a plan over a period of three to five years.  If a debtor does not qualify for a chapter 7 because of income or the debtor wants to keep all assets, which are valued above the exemption limits, then the debtor would file a Chapter 13 bankruptcy.  While a debtor is in a Chapter 13 bankruptcy, the debtor cannot take on any additional debt without approval from the court and trustee.  It is a period of time where the debtor lives on an amount of money determined by the IRS standards for living in that geographical area.  The trustee receives the debtor’s remaining income and distributes it to the creditors according to the bankruptcy code.

Will Filing Bankruptcy Stop my Creditors from Harassing Me?

Yes.  Once a debtor files for bankruptcy, the creditors are barred from trying to collect a debt.  A protective umbrella called “the automatic stay” goes into effect the exact moment a debtor’s bankruptcy petition is filed with the court.  Should a creditor continue contacting the debtor once the creditor has received notice of the bankruptcy, the debtor should contact his or her attorney to cite the creditor for violating the automatic stay.  This can have drastic consequences for the creditor, and so a debtor should not hesitate to contact his or her attorney for protection.

 

What if I Have Debts with My Non-filing Spouse?

In Tennessee:  a bankruptcy will discharge you from being legally responsible for the debt.  Your spouse will remain liable for the debt.  If the debt is something like a mortgage or a car note, and you would like to stay in the house or keep the car, then you would want to reaffirm the debt.  That would keep you legally responsible for the debt, and your spouse would also continue to be legally responsible for the debt.

 

Who is Going to Know I Filed for Bankruptcy?

Bankruptcy filings are public record, but a person or company would generally already have to know you filed for bankruptcy in order to go looking for the filings.  If your property is sold at a foreclosure through the bankruptcy court, then that will generally be posted in the paper.  Any creditor or co-debtor will be given notice that you have filed for bankruptcy.  Additionally, a bankruptcy will remain on your credit report for ten years.

 

How Common is Bankruptcy in Tennessee?

Tennessee has the highest rate of bankruptcy per capita of any state.  In one study, it was estimated that one out of every seventeen households had filed for bankruptcy protection.

 

IIf I Filed a Chapter 7 Bankruptcy Before, When Can I File Again?

If you filed a Chapter 7 bankruptcy more than 8 years ago, you can file another Chapter 7 bankruptcy.   

Can I Be Fired for Filing Bankruptcy?

No, such action is prohibited by the United States Code.

How Long Does the Bankruptcy Process Take?

It depends on how quickly a debtor can gather the required documents and how quickly the attorney can prepare a petition.  Filing for bankruptcy is a document-intensive process, and every month the filing is delayed, the debtor must provide updated pay stubs and bank statements.  Once an attorney files a debtor for a Chapter 7 bankruptcy in Middle Tennessee, there is a Meeting of the Creditors (“341 Meeting”) within about thirty days.  Then, the trustee begins going through the debtor’s assets and making any distributions.  Generally, a debtor will receive a discharge within about two months.  The case will usually be closed within the following month.

Pointers for Constructing a Chapter 13 Bankruptcy Plan

March 2, 2010

Creating a workable Chapter 13 bankruptcy plan can be difficult.  I recently attended a conference led by the Chapter 13 Trustee for Middle Tennessee, and he discussed how to build a feasible plan and how to address some of the issues he keeps seeing reappear in proposed plans.  One of the primary concerns mentioned was that even if a debtor is current on his or her mortgage, the plan must allow for two additional months of arrearage to compensate for the time lost between the filing and the plan confirmation.  In addition, all mortgage payments need to be paid through the trustee.  When the trustee handles the mortgage, then upon discharge, the trustee will issue an order declaring the debtor to be current on his or her mortgage, and that order is important for continuing with the mortgage after bankruptcy.  Additionally, the debtor need not worry about paying the trustee additional compensation for handling the mortgage because the trustee does not receive a fee for that particular function.

Other important information discussed:

-       The trustee will round the plan payment up to the next quarter of a dollar.

-       The trustee wants to know all relevant dates for the secured debts.

-       It is vital to give the creditor proper notice if the debtor is attempting to cram down a debt.

-       Submit a form allowing for payroll deductions.

-       Attorneys fees can be direct deposited by sending a completed electronic funds form with a voided check to luw@ch13nsh.com.

-       The trustee is hoping for attorneys to be checking the “Matters” listing on the chapter 13 network website – an attorney can respond to the matters listed by the trustee and take care of issues before having to go to court.

-       If a mortgage is an adjustable-rate mortgage before the bankruptcy, its rates will continue to fluctuate while the debtor goes through the bankruptcy.

-       It is best to have a permanent rate interest for a mortgage before going into bankruptcy.

-       The government has a different date than other creditors for when its claims are due for a bankruptcy case.

-       As an attorney, you can always list paying back 0% to the unsecured creditors, and when you pay them back more, you will not have to give them notice.  If you list a higher percentage of payments to the unsecured creditors than what the debtor will actually pay, then you must give those unsecured creditors notice.

-       If you have a “split claim” (one where part of the claim is secured and part of it is unsecured), then you must account for that deficiency as an unsecured debt.

-       If a car loan was a PMSI and made within 910 days of filing, then the plan must provide to pay the entire balance in full with interest.  If car was purchased more than 910 days, you can pay back the value of the car (cram down).  The difference between the value of the car and the balance on the debt will be considered an unsecured debt.

-       If there is child support arrearage, then the plan must provide payment in full for that arrearage.  If the debtor cannot cure the arrearage in full, then the child support creditor must give written consent to not be paid in full.

-       The trustee does not make a commission on the child support payments.